While SMEs struggle to gain access to government-backed loans, large corporations have already been bailed out to the tune of approximately £7.5bn via the Bank of England’s newly created Covid Corporate Financing Facility – and it’s all being hidden from public view.
As part of their measures to combat the economic fallout of Covid-19 the Treasury and the Bank of England created a novel scheme called the Covid Corporate Financing Facility (CCFF), to offer financing to large companies whose operations are being impacted by the crisis. As of today, £7.477bn has already been distributed.
To access the scheme, companies must be deemed to make a material contribution to the UK economy and have investment-grade rating or a sound long-term rating from a big credit rating agency, making this a highly exclusive facility. If a company does meet these requirements, they can then issue commercial paper – a short-term debt instrument – which the Bank of England will then purchase with new money it has created just for this purpose.
As the Bank explained in its press release, one of the main justifications for setting up the CCFF was to “help to preserve the capacity of the banking system to lend to other companies, including small and medium-sized enterprises, which rely on banks.”
However, as usual, banks are completely failing in their role to support SMEs by overwhelmingly refusing their loan applications under the government’s Coronavirus Business Interruption Loan Scheme (CBILS). After a number of missteps, including banks demanding personal guarantees and offering excessively high interest-rates, still only a fifth of all loan applications from SMEs across the country have been successful.
While on the other hand, a small number of huge businesses are receiving special treatment from the Bank of England’s CCFF, having already benefited from close to 7 times more financial support than the entirety of UK SMEs put together, with billions more sure to follow.
The most concerning aspect about the CCFF however, is that neither the Bank of England nor the Treasury are being transparent about which corporations have access to the facility. The Bank explicitly states that “the names of issuers and securities purchased or eligible will not be made public” and recipient companies are even required to sign a confidentiality agreement regarding their participation in the scheme.
A few companies however have seemingly broken this agreement by publicly announcing the support they’ve received through the CCFF. This includes EasyJet, Redrow, and Greggs who have secured £600m, £300m, and £150m respectively. With these sums amounting to £1.5bn, that leaves another £6bn already doled out to some of Britain’s biggest businesses completely in secret.
Yet another concern is the no-strings-attached nature of this financial support. Experts and campaigners have emphasized that bailouts for big corporations should come with conditions that benefit workers and the environment. The CCFF includes nothing of the sort. Any money created by the Bank to rescue the economy should be allocated in a manner that is compatible with the government’s climate targets. Complacency on this issue will only result in even bigger crises down the line.
After the last economic crisis the government bailed out the banks, now they’re bailing out big corporates. The CCFF is perpetuating the same old double standard that’s plagued our failed economic system for far too long: it’s one rule for the big players, and another for the rest of us. We deserve better than this. The first step the Bank and the Treasury must take to correct this is to lift the veil of secrecy that’s keeping these bailouts hidden from public view.